For the most part, harvest has concluded across the majority of the United States. Trade is still trying to determine actual crop size, though, as yields were highly variable all season.
Many regions of the Corn Belt reported above-average yields on both corn and soybeans, which was not expected when harvest got underway. While not as good as last year, thoughts are this may give us bigger crops than what USDA is currently projecting in balance sheets.
The most interest when it comes to production and potential changes to ending stocks is on soybeans. If the average U.S. soybean yield would happen to increase as little as 2 bushels per acre, it would greatly alter current ending stocks and remove the need for inventory rationing. Even a yield bump as little as 1 bushel would alleviate much of the current concerns we are seeing on soybean reserves. At the same time, any decrease could put us in a rationing situation.
There is less concern on corn reserves and yields, and we could actually see corn production decrease and ending stocks would still be adequate. This is why we have seen less speculative buying in the corn complex as we have in the soy market. The one wild card in these estimates is demand, as any increase or decrease may excel or negate production worries.
The question now is what is being done with this year’s newly harvested bushels. A large volume of soybean sales took place as soon as harvest got underway. Since then, we have seen a slight decrease in movement as farmers marketed just enough inventory so they can store as much as possible. Soybean movement dropped the most in areas where corn production is questionable. Corn movement has been on the light side all harvest as farmers stored as much as possible to capture market carry.
Even though harvest is just winding down, many farmers and analysts are already looking forward to next year’s production season. The potential shortfall in U.S. soybean production this year to satisfy demand is already causing the market to start pushing for new-crop acres. We have recently seen the new-crop price spread between corn and soybeans reach 2.7:1. This means it takes 2.7 bushels of corn to equal the value of 1 bushel of soybeans. Normally, this ratio is 2.5:1. Anything greater than this, such as we have now, tends to favor soybean production. Any indication that soybean plantings may be less than needed and futures will react accordingly.
We are also starting to see more market attention on South American production, mainly in Brazil. Analysts in both Brazil and the United States are predicting record corn and soybean crops. The question with this is how much added export competition it will bring the U.S. The most will likely be on soybeans, as China has already purchased a large volume of Brazilian soybeans and has indicated it wants to continue doing so. We may see less competition on corn exports, even if Brazil produces a record crop. This is from the elevated domestic corn demand in Brazil for both feed and ethanol.